July 16, Colombo: The UK said today that doing business in Sri Lanka is not without security risks, but lots of companies do export and operate there without falling foul.

In a report released Wednesday, the UK Foreign & Commonwealth Office (FCO) highlighted information on key security and political risks which UK businesses may face when operating in Sri Lanka.

The FCO report tied the political and economic risk in medium-longer future to how successfully the Sri Lankan government can manage the aspirations of residents in the North and East and the redevelopment of former conflict zones and containing the extreme religious groups.

However, there is no threat from terrorism in Sri Lanka for businesses. With the end of military conflict in May 2009, the threat from terrorism has all but disappeared for the short to medium term. The government forces are strongly in control of the former conflict zones and there is little scope for insurgency, it said.

It said the companies that successfully navigate the risks encountered in Sri Lanka are usually well prepared and have strong company policies relating to their behavior overseas.

Sri Lanka ranks high among its South Asian neighbors on the World Bank's Ease of doing business indicators at 85th place out of 185 countries in 2014 beating India ranked 134th and Bangladesh ranked 130.

The report notes that Sri Lanka's economy has remained relatively buoyant during the global economic crisis and is expected to grow at 7.5% in 2014.

The macro-economic background is reasonably stable though challenges arising from high debt and debt repayment need to be addressed in the short term, the FCO report said.

However, the report noted that against a reasonably positive macro-economic background, significant areas of weakness are that the perceived environment for inward investment remains unstable, due to arbitrary political interventions in the market, such as the expropriation of assets bill in 2011, and that the labor market is both lacking in capacity and constrained by restrictive labor laws.

Corruption, although lower compared to other countries in the South and Southeast Asian region, was cited as another security risk in Sri Lanka for businesses.

According to the FCO report the level of corruption is perceived to be high in public procurement. Allegations of corruption plague many government deals, the police, the inland revenue, customs - indeed almost every public body that businesses rely on to function fairly, it said.

The FCO encouraged all UK companies preparing to do business in Sri Lanka to consider their strategy for dealing with bribery and corruption.

The report advised the businesses to ensure that their IP rights are protected and written out in the contract when entering into contracts with Sri Lanka. Big and foreign owned companies might find that the threat of legal action is enough to stop plagiarism, it said.